A call option is primarily a deal through which an investor gets the right to buy a stock. However, it does not give the obligation to the investor to buy a bond, commodity, and other instruments at a certain price, within a confined period. Call Options are mostly used by the investors for tax management, profit making, and making income anticipations. An option contract gives a person the right to buy 100 shares of the underneath security at a certain price, called as the strike price. However, this strike price has an expiration date. For example, one call option contract suppose gives the right to buy 100 shares of Samsung stock at a certain price up to a certain date. As the worth of Samsung’s stock gets higher, the cost of the options contract gets higher, and as the Samsung stock price gets lesser, its option price too gets lesser. A person can hold the contract to a certain date of expiry, within which they can take 100 shares or can sell the contract anytime as per the market value of the contract then. There are certain points that everyone having interest in ‘Call Option’ should understand.
Put/Call Ratio
Put Call Ratio is a tool that has been particularly designed to assist individual investors in measuring the condition of the market in general. This is calculated by dividing the cumulative traded put options by the number of traded call options. If the ration increases, it is understood that investors are investing in the put options, instead of the call options. In short, Put Call Ratio makes things safer for an investor.
Put Option
A put option can be simply understood as the opposite of the call option. Here through the contract, the owner gets the right, not the obligation, to sell a certain amount of underneath security at a certain price within a certain period. A growing number of traded put options indicate that investors are either anticipating that the market will go slow or are getting cautious for selling.
Understanding Things from the Indian Scenario
The prime five segments of Indian Stock Market are Equity, Nifty Future, Nifty Options, Stock Future, and Stock Options. Just like every other case, Nifty too has Call and Put option. These Nifty Options mostly expire on the last Thursday of the month on an expiry day. Exactly as explained, more interest in Calls means the market is growing for Nifty, and the greater interest in Put indicates the market is getting timid.
How Call Options Help In Tax Management
Call options can be used for tax management. Investors in some occasions use options as a way to change the allotment of their profile without really buying or selling the underneath security. For example, an investor may buy 100 shares of Samsung stock and stay relaxed on a big unexpected capital growth. Not wishing in coming across a taxable instance, shareholders may go for the options to minimize the chances to the underneath security without selling it. The only expense a shareholder has to make is simply the price of the option contract.
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